El Paso Corp (EP) shareholders have filed suit against Goldman Sachs (GS) for its role in advising the company to sell itself to Kinder Morgan Inc (KMI) according to the Wall Street Journal. The suit alleges that GS advised EP to sell itself cheaply instead of spinning off its operations in order to benefit from the deal.
Kinder Morgan Bought El Paso for $21 Billion
Kinder Morgan agreed to buy El Paso for roughly $21 Billion last week, in a deal that combined cash, stocks and warrants to make KMI the largest natural gas operator in North America. From the deal, El Paso shareholders were to receive a 37% premium over the market close price prior to the deal. According to the Wall Street Journal, “numerous shareholders have sued over the inclusion of warrants to pay for the deal and what they consider a low valuation, among other issues.” Shareholders filed suit against GS in Delaware’s Chancery Court, “for its conflict of advising the board to accept a “low-premium” deal with Kinder Morgan, in which Goldman Sachs owns nearly 20 percent.”
El Paso Abandoned Plans to Spin Off
The Kinder Morgan deal also meant that El Paso had to abandon plans to spin off its exploration and production business. The suit claims, “Goldman Sachs earned larger advisory fees than if El Paso had consummated the spin-off, and Goldman Sachs stands to see its 20 percent investment in Kinder Morgan increase in value.”
El Paso shareholders are not the only stakeholders upset over the deal. The Wall Street Journal reports, “The lawsuit by a retirement fund for Louisiana police also names as defendants Kinder Morgan and the board of El Paso and seeks an injunction to block the closing of the deal.”